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The Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan, launched in 2003, is the European Union’s (EU) response to the global fight against illegal logging. In particular, FLEGT aims at reducing trade in illegal timber between the EU and timber producer partner countries.FLEGT operates through two major instruments: bilateral trade agreements — known as voluntary partnership agreements (VPAs) — that are signed with willing producer countries, and the European Union Timber Regulation (EUTR), which came into force in March 2013. The EUTR mandates EU importers to exert due diligence in their sourcing of timber from abroad to exclude illegal supplies.To date, six countries have signed VPAs. Among them, five have committed to apply VPA provisions regarding legality verification not only to timber imported to Europe, but also to timber traded on the domestic market in signatory producer countries. This means that timber harvested and traded on the domestic market will be regulated by national VPA licensing schemes (the so-called Timber Legality Assurance System, [TLAS]).Cameroon, the Democratic Republic of the Congo (DRC), Ecuador and Indonesia are characterized by a large, vibrant and largely informal domestic timber sector, which supports the livelihoods of hundreds of thousands of local forest users including small-scale farmers, indigenous communities, chainsaw millers, traders and service providers such as transporters. The domestic sector in Gabon is less significant due to the country’s small population and the concentration of activities in the capital. In most countries, employment in the informal sector is comparable to or higher than the formal industrial timber sector. The estimated number of informal jobs provided by the sector varies greatly among countries, from about 45,000 in Cameroon to about 1.5 million in Indonesia.In all countries studied, the domestic timber sector is characterized by the activities of smallholders, chainsaw millers and traders, who rarely own a legal harvesting permit and extract and process small quantities of timber with chain or mobile saws. The resulting low-quality timber is traded in domestic markets or across the borders of neighboring countries, with little formal taxation. Research results indicate, however, that as the product moves along the production chain, 5–15% of the total costs incurred by informal operators are paid in bribes to representatives of ministries, local police, the military and customs officials.By agreeing to include the domestic sector as an integral part of their TLAS, producer countries are committing to undertake broad governance reforms of the entire forestry sector. Implicitly, such reforms entail formalization of the domestic sector through monitoring, control and verification.In the countries of the Congo Basin and in Indonesia, such reforms will require the redrafting of current legal frameworks, which are designed around industrial large-scale export-oriented forestry operations, conducted by politically powerful companies with logging concessions. In all countries, existing laws are not structured to sustain a healthy, small-scale, domestic timber market. Research findings indicate a need to improve and simplify access to the resource; to develop and adopt specific fiscal regimes for the domestic timber sector (e.g. royalty rates, processing, transport and marketing levies); to improve access to credit on favorable terms for small-scale operators; to create incentives to comply with the law; and to improve flows of information to small-scale operators.

Policy options for improved integration of domestic timber markets under the voluntary partnership agreement (VPA) regime: Synthesis from lessons learned in Cameroon, the Democratic Republic of the Congo, Ecuador, Gabon and Indonesia